Michael Bailey Deputy editor

Michael has been a business journalist for 12 years. He has extensive experience editing magazines covering funds management, commercial property and the travel industry. In 2011 he won a Citi Excellence in Financial Journalism award for a BRW cover story on economic indicators.

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Taxi industry deregulation: hail the ‘driverpreneur’

Published 12 June 2013 06:40, Updated 05 July 2013 10:12

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Taxi industry deregulation: hail the ‘driverpreneur’

Hamish Petrie, managing director of booking app Ingogo, says fiercer competition between payment systems means extra revenue for cabbies. Photo: Rob Homer

Taxi drivers would have to be Australia’s lowest-paid entrepreneurs. To most of their passengers, cabbies would be considered semi-skilled workers, rather than businesspeople.

Yet they fulfil many of the basic entrepreneurial criteria, and starting in Victoria, taxi industry reforms are afoot that promise to create new opportunities for service providers and broaden a driver’s options – except perhaps in the case of drivers who also own their taxi licence, because their long-protected values could free-fall if the reforms come to pass.

A Sydney cabbie interviewed on the road by BRW – let’s call him John – typifies the entrepreneurial spirit which struggles for adequate reward in the taxi industry of today.

A first-generation migrant helping support two school-aged children, John is proud of the fact he gets to choose who he works for on any given shift, and provides his own seed funding.

John paid $130 to the owner of a licence affiliated with the Taxis Combined network for this particular Wednesday shift. The ASX-listed Cabcharge owns that network. It also owns the booking and dispatch service for most of the other major networks, as well as the electronic payment system which John says most of his passengers use, despite it adding 10 per cent to their fare.

Cabcharge’s net profit after tax rose 28.5 per cent to $33.3 million in the second half of 2012, and John too is hoping for a profit in the second half of his shift today.

When BRW hails John’s cab around 11am, he’s been on the road since 4am and has made $120 so far. He says he avoids picking up “groups of young people” before dawn, but still averages one or two “runners” a week.

Your correspondent’s fare will get him into the black for this shift, but then John has to hope his judgements of which city streets to trawl, or ranks in which to wait, are the right ones.

Perhaps a regular customer will call him. He keeps an eye on his smartphone for jobs through Ingogo, a booking app that has tapped into drivers’ entrepreneurial flair and raised the ire of networks by offering drivers jobs directly. The networks say these apps are piggybacking off their investments in the insurance, safety and complaints-handling that underpin the system.

In any case, John has until about 2pm to make the money that will feed his family. The cab has to be back in Parramatta, 23 kilometres west of the Sydney CBD, by 3pm.

Swapping holidays for time behind the wheel

At least the LPG gas he’ll chew up getting there was factored into his ­“pay-in”. Like many parts of the NSW taxi industry, maximum shift pay-ins are regulated by the state government and currently sit at $210 for shifts including Friday and Saturday night, or $160 mid-week.

The pay-in includes an allowance for holiday pay, according to NSW Taxi Drivers Association executive committee member (and a cabbie himself), Trevor Bradley. In the entrepreneurial tradition, most drivers are bargaining it away.

“There’s so little money in a shift, drivers won’t take a taxi out unless they can get a much cheaper deal. So they’re sacrificing their holidays, and it’s an unstable situation all round.”

A lot to lose ... Cabcharge CEO Reg Kermode.Photo: Phil Carrick

Bradley doesn’t blame the licence owners. He says he knows many cabbies who have taken out a mortgage to buy their own, meaning they must cover rising insurance and vehicle costs, plus the excise on LPG gas introduced in 2011. He says the biggest weight on taxi drivers is the “millstone” of government regulation.

“The taxi industry is in semi-commercial limbo. It’s a bunch of private businesses at its core, yet it’s controlled by state governments. If we could make our own commercial decisions, we could adjust our prices to the costs,” he says. Fares in NSW are about to go down an average 1 per cent if the state’s Independent Pricing and Regulatory Tribunal gets its way, yet Bradley says they would need to go up 40 per cent just for drivers to get the equivalent of the $16 per hour minimum wage.

“For what the public is getting, taxis are under-priced,” he insists.

Cracking open the cabs

The market forces which Bradley claims the taxi industry needs are about to become stronger in Victoria.

The Victorian government’s actions in response to a report by former Australian Competition and Consumer Commission (ACCC) chief Alan Fels represent revolutionary taxi reform.

They include halving the maximum credit card surcharge payable in taxis from 10 per cent to 5 per cent, demanding Cabcharge cards be processable through alternative payment systems, axing mandatory network affiliation and making licences available to any driver willing to lease one for $22,000 a year. Regulation has previously focused only on fares and restricting the quantity of taxi licences, not on the structure of the networks themselves, says Peter Abelson, an economist who assisted Fels.

Abelson says the new rules will allow taxi drivers to become more business-oriented, slashing the red tape around individual drivers branching out into their own hire car business.

In a major challenge to network power, the owners of as few as 20 Victorian taxi licences can now join to form an “authorised taxi organisation” (ATO) which, subject to minimum service standards, can offer radical innovations by taxi industry standards – discounted fares, share rides and set-route services.

Outside metro areas, ATOs will even be able to dump the standard yellow livery for their own colours. “They can present as ‘Smith Taxis’ rather than Taxis Combined,” Abelson says.

Drivers may also benefit from a surge in electronic payments, thanks to the halving of the Cabcharge credit card surcharge, especially if Cabcharge is forced to allow alternate payment systems to process its Cabcharge cards, common in corporate Australia.

Fiercer competition between payment systems means extra revenue for drivers, says Ingogo chief executive Hamish Petrie, whose smartphone-based booking app pays commissions to drivers to compete with those paid by fixed terminal providers like Cabcharge.

It’s 3pm for Cabcharge

Founded by Reg Kermode in 1976, Cabcharge has a lot to lose from the new rules, as do all licence owners.

“The people who were counting on those licences as their retirement income have been robbed. It’s not right,” says driver advocate Bradley.

The value of a Victorian metro licence rose as high as $510,000, but was down to $300,000 before the response to the Fels report was released, says chief executive of the Australian Taxi Industry Association, Blair Davies.

“Licence values get associated with the cost of taxis, yet fares in Victoria haven’t moved in six years,” he says.

Deregulating fares will only add to costs, he says, a sentiment echoed by his NSW counterpart, Roy Wakelin-King, who says transparent, universal fares measured by regularly inspected meters are integral to taxis’ place in the public transport network.

“If you want to haggle, book a hire car,” he says. In Victoria, it could be an ex-cabbie driving you anyway.

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